Ferri: Let’s Celebrate The Independent Advisor

July 01, 2015


One behemoth mutual fund company who will remain nameless has recently launched an advisory service that charges clients a separate fee to choose their funds and manage a portfolio. The company restricts client portfolios to only their own proprietary mutual funds for which they are also paid fees.


They do not recommend competing mutual funds even when those products may be a better fit for their client.


Sound familiar? It’s the suitability standard for brokers that I described earlier.


Robo Advisors

Here’s another example. There is a growing presence in the marketplace of automated portfolio management services that use ETFs exclusively in their core portfolio management offering. These firms are often referred to as robo-advisors. Investors take a questionnaire on-line, are served up a portfolio of ETFs, and then asked to open an account and invest, all without speaking with a human being.


Why do most robo-advisors only use ETFs and exclude mutual funds? It’s not because mutual funds don’t offer broad, low-cost investment opportunities, nor is it because ETFs are better than traditional funds. It’s because the robo-advisors haven’t figured out how to efficiently include mutual funds in a portfolio due to trading issues and settlement differences with ETFs.


A fiduciary is not biased; they act in the best interest of the client and provide full and fair disclosure of material facts and conflicts of interest. Restricting client portfolios to a narrow set of investments because it benefits of the adviser runs contrary to this ideal.


Being a great steward of clients’ money isn’t easy, and no investment adviser is perfect. I’m proud to say that my firm, Portfolio Solutions®, has never restricted clients to one mutual fund company or to ETFs only. When we believe an investment best fits a client’s needs, we use it. That’s adviser independence. That’s the way it should be.


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